BY MARK SCHUMANN

Wonder what the strategy is for clearing the hurdles now standing between wishful thinking and a consummation of the sale of Vero Electric to Florida Power & Light?  At this point, it seems the city’s approach is fairly simple and simplistic – make the Florida Municipal Power Agency out to be the bad guy.

What FMPA leaders have made clear, to city officials, to the transactional attorneys and to the press, is that they stand ready to help Vero Beach accomplish its objective of selling its electric system, but in a way that does not violate the city’s contractual obligations to the FMPA, its bondholders and its remaining member cities.

Based on questions one reporter posed in an email today to City Manager Jim O’Connor and to the city’s transactional attorneys, misunderstandings abound about the city’s obligations to the FMPA and the FMPA’s obligations to its members.

For example, some still haven’t grasped the concept of a revenue bond.  “Also, could one of you please explain, in a way that my readers could understand, how and why Vero’s electric revenues were put up as collateral on FMPA bonds and how that might impact the sale to FPL going forward?” the reporter wrote.

Quite simply, tax-exempt municipal revenue bonds are secured by a municipal utility’s customer base.  These bonds are not secured by a city’s taxing authority, but by the revenue from its utility operations.

When revenue bonds are issued by a group of municipalities working together through a joint action agency such as the FMPA, the bonds are secured by the revenue each participating municipal utility can reasonably be expected to earn.  If one of the cities withdraws, as Vero Beach proposes to do, investors are left with less assurance the bonds will be paid off.

In the case of the proposed sale of Vero Electric to FPL, the Orlando Utilities Commission has agreed to assume Vero Beach bond obligations on three FMPA power projects.  In exchange, the OUC is to receive $34 million in cash and an additional  $40 million in other considerations. The FMPA power projects consist of the agency’s fractional ownership in the St. Lucie Two nuclear unit and the Stanton I and II coal-fired plants in Orlando.

If for some reason the OUC should falter, Vero Beach will remain contingently liable to pay off its share of FMPA’s bonds on these three projects.  How Vero Beach’s contingent liabilities can be honored after it sells its customer base to FPL remains an issue to be resolved.

Apart from Vero Beach’s participation in three FMPA power projects, the city is also one of 15 members in the FMPA’s All Requirements Project.  Without a waiver, which must be granted by each ARP member, Vero Beach will remain a part of the group through September 30, 2016.  As a member of the ARP, the city is not free to sell its electric system.

Further, as an ARP member, Vero Beach shares in contingent liabilities associated with the operation of ARP projects, including the Taylor Swaps, an option/commitment entered into a number of years ago to borrow money at an interest rate now higher than today’s prevailing rates.  If the Taylor Swaps were called in today, Vero Beach’s share of the loss would be some $10 million.

Simply put, by agreeing to give Vero Beach a waiver to leave the ARP early, the remaining member cities will also be agreeing to assume additional contingent liabilities.

Councilmembers Tracy Carroll, Craig Fletcher and Pilar Turner, along with the transactional attorneys and FPL spokespersons, have consistently glossed over these issues, presumably in hopes of leading the public to expect the sale of Vero Electric well before late 2016.

They seem to want the sale so badly that they are willing to ignore the reality of the city’s contractual obligations to its fellow FMPA members and their bondholders.  Or, maybe they are just hoping against hope these issues will magically disappear.

In her memo today to O’Connor and the city’s transactional attorneys, the reporter surmised that communications to and between FMPA members about the liabilities they would have to assume on Vero Beach’s behalf “appear to be a tactic to insure a ‘no’ vote on the proposed waiver.”

Somehow this reporter is confusing cooperating with malfeasance.  It would be one thing for the remaining ARP members to knowingly assume additional liabilities in order to give Vero Beach a waiver.  But it would be something quite different for FMPA leaders to let their members be blindsided by what could well amount to contingent liabilities of $20 million or more.

No elected official in his or her right mind, not even Carroll, Fletcher or Turner, would assume such liabilities without some offsetting benefit to their constituents.

Turner and the city’s transactional attorneys have proposed to conduct a 14-city magical mystery tour in which they plan to present a compelling case to each of the city councils and/or utility authorities that they must agree to Vero Beach’s request for a waiver to leave the ARP before late 2016.

Here’s a potentially cost-saving idea.  The Fort Pierce Utility Authority is a member of the ARP, and they are just 20 miles down the road.  Before Turner and the city’s $500-hour attorneys rack up travel expense and legal bills, they might do well to hike on down to Fort Pierce.